Big Tech companies sink after Fed report
Technology companies led stocks lower Thursday on Wall Street as investors weighed the implications of higher interest rates on the market. The declines came a day after the Federal Reserve said it’s preparing to begin raising rates next year to fight inflation.
The S&P 500 fell 0.9 percent, erasing about half of its gains from the day before. The Nasdaq slid 2.5 percent, its biggest drop since September, as Big Tech heavyweights like Apple and Microsoft fell. The Dow Jones Industrial Average slipped 0.1 percent
The sell-off, which gained momentum as the day went on, was a reversal from a day before, when technology sector stocks led a market rally following the Fed’s latest interest rate and economic policy update.
The central bank signaled plans to speed up its reduction in monthly bond purchases that have helped maintain interest rates low. The shift in policy sets the stage for the Fed to begin raising rates sometime next year.
Large technology companies often have lofty valuations based on assumptions about their profitability going far into the future. Investors tend to accept those higher valuations more easily when interest rates are extremely low, giving them fewer alternatives for returns. With interest rates poised to rise, investors are rethinking the high valuations they put on tech giants.
“Today it’s almost like you’re getting the reaction that everyone was expecting a day earlier,” said Ross Mayfield, investment strategist at Baird.
The S&P 500 fell 41.18 points to 4,668.67. The benchmark index is within 1 percent of the all-time high it set last Friday,
The Dow slipped 29.79 points to 35,897.64. The Nasdaq’s losses wiped out its gains from a day before. It ended down 385.15 points to 15,180.43.
Stocks have been choppy in recent weeks as investors waited for more guidance from the Federal Reserve amid signs of growing inflation in the economy and worries over the rise of the omicron variant of COVID0-19.
Inflation has been a growing concern throughout 2021. Higher raw materials costs and supply chain problems have been raising overall costs for businesses, which have raised prices on goods to offset the impact.
On Wednesday, the Federal Reserve announced an acceleration of its pullback of economic stimulus as it pivots to fighting inflation. The central bank plans to shrink its monthly bond purchases at twice the pace it previously announced as unemployment falls and inflation nears a 40-year high. The timetable puts the Fed on a path to start raising rates as early as the first half of next year.